Former Labor Secretary Reich: Bush-Era Tax Cuts ‘Hurt Quite a Lot’

September 29, 2010 at 5:16 PM EST

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In the last of the series of conversations about whether to extend Bush-era tax cuts for any, all or some Americans, Robert Reich, who served as secretary of labor in the Clinton administration, explains why he believes they should not be extended.

JEFFREY BROWN: And to the last in our series of conversations about whether to extend the Bush-era tax cuts.We have heard a range of views from economists Glenn Hubbard and Laura Tyson, as well as former Fed Chairman Alan Greenspan.

Tonight, we turn to Robert Reich, professor of public policy at the University of California, Berkeley.He served as labor secretary in the Clinton administration.His new book is “Aftershock: The Next Economy and America’s Future.” Welcome to you.

ROBERT REICH, former labor secretary:Hi, Jeff.

JEFFREY BROWN: Now, you were against these tax cuts from the beginning.So, nine years later, what’s your view on how much they have helped or hurt?

ROBERT REICH: Well, I think they hurt quite a lot.The original Bush tax cuts of 2001 and 2003, remember, were sold to America as a way to revive the economy and also create a lot of jobs and generate a lot of wage growth.Well, actually, if you look at the record between 2001 and 2007, the so-called Bush recovery, there were very few jobs.Even the widest and broadest and most generous estimate is about 10 or eight million jobs, relative to the 22 million jobs created under the Clinton administration.

JEFFREY BROWN: So — so, when we get to now and the question of what to do about them, whether to let them lapse, you’re for letting them lapse at the top end for the wealthiest, but not for the majority of people?

ROBERT REICH: Yes.I think that we aren’t in a deep recession.I mean, technically, we’re out of the great recession, but, obviously, the aftershock of this recession continues.

We ought to provide at least middle-class people with as much benefit as they can.Why raise taxes now?But people at the very top, they tend to save much more of their income than people in the middle.They don’t spend nearly as much.Therefore, there’s not much bang for the buck in terms of giving them an unwarranted and unexpected extension of the Bush tax cuts.

Also, remember, people at the top, if they did get that one-year extension that they didn’t expect, that would put a huge hole in the budget deficit that apparently — and I think justifiably — many people, Republicans and others, are very concerned about.

That — in fact, millionaires and millionaire families would get, next year, if the Bush tax cut were extended, $31 billion — $31 billion — that could otherwise be used to, say, save the jobs of teachers or police officers or firefighters, who would use their money, and who would spend it, and whose jobs are very important.

JEFFREY BROWN: Well, but when you argue for keeping the middle-class tax cut, is that an economic argument at this point or a political argument?Because you have just made the case before that these tax cuts, you think, didn’t do that much in the first place.

ROBERT REICH: Well, it’s important to keep them.I don’t think the tax cuts originally did trickle down, at least the tax cuts that went mostly to the rich.But the portion of the tax cuts, again, not a large portion, but a portion of the Bush tax cuts that went to the middle class and the lower middle class and the working class, I say keep them.

I mean, it’s not going to have a huge impact on the spending patterns of most people, because, as you said, as I suggested before, they didn’t get very much out of the Bush tax cuts.But, nevertheless, why raise taxes on them to begin with?Let’s give them every dollar that they possibly can get.And there’s no reason to reduce their spending.

After all, the spending of the middle class and America’s working class, people who are going to spend almost every dollar they have these days, that spending is terribly important to keep the economy going.

JEFFREY BROWN: Well, one reason to let them lapse for the middle class — the argument was made by Alan Greenspan on the program a few days ago.Now, he supported them originally, but now he argues that we just can’t afford them.He was citing the potential catastrophe of the debt problem, where the government is no longer able to pay for what it wants to do.

ROBERT REICH: Well, Jeff, undoubtedly, there is a tradeoff between, in the short term, providing as much stimulus to spending, particularly middle-class and working-class spending, as possible, and then, over the long term, dealing with that long-term budget deficit.

But I think the best compromise and the best balance here is to let those Bush tax cuts lapse for people at the top, who, again, they don’t need it.They save much more of their income than people in the middle.It’s not a huge burden on them.

Remember, all the lapsing of the Bush tax cuts means for people at the top is that they would go back to the Clinton-era marginal income tax of 39 percent and a 20 percent capital gains tax.You know, remember, under Bill Clinton, the economy did very, very well.

People tend to think, oh, horrible that we would subject the richest Americans to the marginal tax rates under Bill Clinton.Well, again, the economy was very prosperous in those days.

JEFFREY BROWN: Now…

ROBERT REICH: With regard to the middle class, though, let’s not raise their taxes, not right now.

JEFFREY BROWN: Well, several of our previous guests in this series have talked about putting — thinking in terms of the Bush-era tax cuts in terms of reforming the tax code more broadly.

And I know that, in your new book, you talk about that.And — but it sounds like you want to go even further, to have, in fact, raising the top end quite dramatically.Up to 55 percent?

ROBERT REICH: Yes.-What we tend to forget when we talk about taxes is that most middle-class, working-class people are already taxed enormously.The sales taxes in most states have gone up.The taxes that we call payroll taxes that deal with Social Security and unemployment insurance, those payroll taxes, FICA, have actually gone up.

Eighty percent of American workers pay more in payroll taxes than they do in income taxes.So, why not, I have suggested, exempt the first $20,000 of income from the payroll tax and make it up by putting the payroll tax on incomes over $250,000?

In other words, there are many long-term issues, Jeff, that have to do with fairness of our tax system.And the tax system is hardly fair.We — right now, we have multimillionaires who are able to treat much of their income as capital gains, subjected to now a 15 percent income tax.

JEFFREY BROWN: Well, let me just add in our last minute, I mean, you can hear the objections to that, the same ones we’re hearing right now from Republicans and some Democrats, that — that that would hurt — that that would hurt small businesses, that would hurt the investors, the very people who — who potentially can get economic growth back again.

ROBERT REICH: Well, let me emphasize, number one, small business leaders were not hurt during the Clinton years, where the Clinton marginal tax rate on the top earners was 39 percent.

Secondly, only 3 percent of small business owners have incomes over $250,000 and would be affected, in any event.Thirdly, we’re only talking about the marginal income tax — that is, only their incomes over $250,000 would be affected.Anything under $250,000 would actually be subjected to a lower tax rate than they had before.

The other thing to note, Jeff, is that, when Republicans and others who don’t want to go back to the Clinton tax rates talk about small businesses, they fail to acknowledge that most of the really very wealthy small businesses, the ones that are earning a lot of money, those are really individuals.

They are investment bankers, or they are doctors or lawyers who have registered themselves and they talk about themselves and they also file income taxes as if they’re businesses.And that’s good for them in terms of their tax rate, but they don’t generate a lot of jobs.

These are not mom-and-pop stores or mom-and-pop factories.These are very high-paid professionals.So, there’s no reason that they should be subjected to another year — or no reason that they should get another year of the Bush tax cut that was really designed and everybody expected it would be only 10 years.

JEFFREY BROWN: All right.Robert Reich, his new book is “Aftershock.” Thanks very much.Thanks for talking to us.

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